On Sun, 13 Jan 2008, Julio Huato wrote:
> Maybe it's my eyesight, but Michael's interpretation of R&R's paper is
> not clear to me. I don't see much of the connection between R&R's
> claims and Doug's views.
<snip>
> Just as I don't understand Patrick's qualms with the paper.
<snip>
> Patrick's reply confuses me because, as evidence has piled up, Doug
> has (it seems to me) adjusted his gradually shifted his expectations
> in Patrick's direction. I feel that Doug is now (as opposed to early
> in the fall) much more inclined to entertain the notion that a serious
> U.S. economic downturn may be coming -- if we're not already in its
> midst.
And I don't understand either of your objections. You and Patrick seem to be objecting that R&R is being pollyannish because they don't think there is going to be a big downturn. But that's the whole point of R&R's paper. They think a big downturn is coming because when they compare it to what they consider similar crises in the past, they were all followed by big downturns. And compared to them, we haven't barely started our downturn yet. And compared to them we went farther off course in the first place, which usually indicates a bigger downturn.
Doug made a similar argument in his article "After the Bubble" in LBO 116. At the bottom of page 4, column one, he says, using similar rough, back of the envelope chartist logic:
<quote>
Speculative markets are about time as well as price, and the recent bubble has no peers on longevity. AS the table on p. 7 shows, prices rose for almost 12 years. Its closest rival was the 1980s boom, which lasted 7 years. The earlier busts on that chart lasted almost as long as their preceding booms, and gave back around half the upwave's gains.
<quote>
If you add that statement to the chart on page 7 (I'm sure you're all following at home because I'm sure you're all subscribers) that's a pretty stunningly gloomy suggestion. It suggests that we'll be in bust *for nigh on a dozen years* since this bust is only a year old according to his chart, starting in the fourth quarter of 2006. And since we gained 74.5% between 1995 first quarter and 2006 fourth quarter, *and we only gave back 1.3% in the first two quarters of 2006* (when his article was written) that suggests that by far most of the damage was yet (and is still yet) to come.
And IMHO a similar feeling of vertigo is induced by looking at the R&R chart on p. 6.
So I have no idea what either of you guys are talking about. It sounds to me like you won't take yes for an answer.
Sorry I brought it up!
Michael